The separation between ownership and control and the resulting conflict of interest, known as the '
principal-agent problem,' is the key area of corporate governance focus.
The purpose of the franchise model is not to lower labor costs; the purpose of the franchise model is to solve what economists call the
principal-agent problem.
In the social sciences and in economics, this tension between the incentives of combatant commanders and the Services is classically defined, as noted earlier, as the
principal-agent problem. In this construct, combatant commanders are collectively the principal due to their responsibilities to employ forces in joint operations, while the Services are the agents that generate these forces.
For example, he shows how the fixation on metrics can be seen as an instance of the
principal-agent problem. In case of a listed corporation, the principal--the shareholders--need to make sure that the agents--the executives--maximize profits.
This report will seek to clarify populism by identifying it as a style of republican politics, in particular populism's anxiety about the
principal-agent problem inherent to representative government.
More specifically, the analysis reveals that while contemporary anticorruption reforms are based on a conceptualization of corruption as a
principal-agent problem, in thoroughly corrupt settings, corruption rather resembles a collective action problem.
This essay defends the longstanding practice of tipping in restaurants as an ingenious institutional mechanism for solving three common economic problems: the
principal-agent problem; capturing gains from trade via price discrimination; and promoting the cultural trust necessary for anonymous exchange.
Sannikov, "A continuous-time version of the
principal-agent problem," Review of Economic Studies, vol.
In recent decades, economists have devoted great efforts to the analysis of the
principal-agent problem (see, for example, Milgrom and Roberts 1992).
Jensen and Meckling formalized the theory of corporate governance by pointing out the benefit of public corporations in their ability to spread risk among a large pool of well behaved-investors, while allowing professional managers to specialize in the day-to-day running of operations; and providing a accessible analysis of
principal-agent problem arising from the potential conflicts of interests between a company's management and its shareholders.
In China, paper money aided transactions, and bureaucracy brought monitoring and incentives to address the
principal-agent problem. Goetzmann describes the Knights Templar as an alternative banking institution that was separate from a particular state and that could provide credit and banking services for Western Europe.
"An Analysis of the
Principal-Agent Problem." Econometrica, 51, 1983, 7-45.
